Two years ago you could scarcely open a newspaper without reading about health care, and you might be forgiven for thinking (or hoping) that the debate was over. Yet the Patient Protection and Affordable Care Act that was signed into law in March 2010 offers more concrete plans for reforming the health insurance system than for reforming the health care system. It will change how we pay for health care but not how much we pay—and that is a problem. Government actuaries have calculated that total health care spending by the public and private sectors will grow from $2.7 trillion (17.4 percent of GDP) in 2011 to $4.6 trillion (19.6 percent) in 2019. The U.S. needs to get smarter about restraining soaring medical bills while improving the quality of care.
The U.S. is not alone in facing this dilemma, but it is arguably the most deeply encumbered by it. It spends far more per capita than any other industrial nation, yet all that money fails to buy the best care. In terms of people’s level of disability, the care they receive for chronic conditions, and their life expectancy, the U.S. ranks below many other countries that spend much less. Compared with the average American, the average citizen of France or Israel lives three years longer, the average Australian four years, and the average Japanese five years.
Why does health care cost so much more and deliver so much less in the U.S.—and what can be done about it? No single or simple explanation covers all the bases, but three factors loom particularly large. First, the U.S. health care system is highly fragmented, leading to much duplication of effort. A 2007 study, for example, found that older patients see an average of seven different doctors, including five specialists from four different practices, in any given year. Second, clinicians and health organizations are paid on the basis of the services they provide rather than improvements in their patients’ health, creating perverse economic incentives to overuse drugs, procedures and hospital beds. Third, doctors and hospitals are quick to adopt expensive new drugs, procedures and technologies without requiring that they prove significantly more effective than cheaper alternatives.
Politicians have acknowledged the crippling cost of medicine, yet their proposals do little to fix these basic flaws. For instance, replacing Medicare benefits with vouchers that individuals can use to buy their own health insurance, as was recently proposed by House Committee on the Budget Chair Paul Ryan, merely shifts more of the financial burden to private citizens. And most of the cost-saving initiatives found in the Affordable Care Act are demonstration projects—not large-scale reforms. The factors that inflate health costs must be addressed widely and directly. Fortunately, promising solutions are beginning to emerge:
Reducing Fragmentation. The Department of Veterans Affairs, federally certified community health centers, and a few regional care systems are demonstrating that greater coordination of care can keep people healthy and out of the hospital. For example, several Philadelphia hospitals have assigned nurse practitioners to organize the care of elderly patients with chronic illnesses after they were discharged. Readmission rates have dropped by more than a third and net expenditures by nearly 40 percent, despite the extra personnel costs.
Phasing Out Fee-for-Service. So-called accountable care organizations are pairing hospitals with community health teams. These groups will be paid a set amount per patient based on the severity of the individual’s condition, such as diabetes. The organization earns a bonus if the person’s health improves and keeps any savings if it manages to meet its health targets for less than the contracted amount.
Comparing Effectiveness of Procedures. On page 50, in “The Best Medicine,” science writer Sharon Begley describes a powerful analytical tool to help rein in cost. Dubbed comparative effectiveness research, this approach originally involved mining the available data about conditions and treatments to figure out how expensive therapies stacked up against cheaper options. The technique has now been extended to determine whether some ways of organizing the care provided by hospitals and health centers are more effective than others. For example, it can check whether the ratio of general care clinicians to specialists should be increased or whether elderly patients would benefit from support services that allow them to live longer at home.